Is the Telstra Corporation Ltd (ASX: TLS) share price a buy for income?
Over the past 15 years many investors would have said "yes" to the above question. Rightly so, perhaps.
A good defensive business with the enviable asset of its cable infrastructure that throws off bucketloads of cash every year, which it then pays to shareholders in the form of fully franked dividends.
But then came along the NBN and ruined the party. Since the payment of the 2017 annual dividend amounting to $0.31 per share the dividend has been cut by nearly half.
However, the share price has been falling too, so new investors were able to seemingly still pick up a good dividend.
Suffering capital loss for the sake of a dividend isn't a good idea though. The HY19 result showed total income dropped by 4.1%, earnings before interest, tax, depreciation and amortisation (EBITDA) declined 16.4% and net profit after tax (NPAT) fell 27.4%. The HY19 dividend? Cut by 27%.
A 'dividend' share is no use if your income is being cut by over a quarter every year.
Some analysts might now argue that the worst is over, the earnings have nearly bottomed out and the share price has rebounded 27% since the low in mid-2016. But things don't look like they will improve any time soon.
Telstra has a number of sizeable competitors like TPG Telecom Ltd (ASX: TPM), Optus, Vodafone, Amaysim Australia Ltd (ASX: AYS) and others. Phone data and home broadband services are seen as commodity services these days, so margins continue to get squeezed.
Although technology continues to improve the world, sometimes a lot of the benefit goes to the customer through cheaper prices rather than going to the company, which is what is happening to Telstra.
Foolish takeaway
Telstra is currently trading at 16x FY19's estimated earnings with a grossed-up dividend yield of 6.8%. I don't think Telstra is worth investing in for the next couple of years until we learn more of the 5G economic model, it would need to drop below $2.80 again for me to consider it.
